CGT – transactions spanning 5 April 2008
Updated May 2008
Many businesses and individuals entered into arrangements prior to the 5 April 2008 and agreed that part of the consideration be deferred until after 6 April 2008. If this involved the sale of a chargeable asset for capital gains tax purposes, have the recent significant changes to CGT affected this deferred arrangement?
There are many transactions that were undertaken under the old regime but the tax point will not have been reached until the new rules came in. This applies to many business transactions, such as take-overs or reorganisations, involving the use of loan notes. This alert points out those types of situation and what relief might be available.
If you are affected by this issue, you will need our help to see if the subsequent repayment of loan notes or other types of security are eligible for transitional arrangements, written into this year’s Finance Bill.
The issues we will need to work through with you are:
1. Entrepreneurs’ Relief – At the time the arrangement was entered into, prior to 6 April 2008, would the disposal have qualified for the new Entrepreneurs’ relief?
2. Qualifying Corporate Bonds (QCB’s) – If you agreed to defer receipt of the proceeds of a chargeable sale by issuing Loan Notes, they generally fall into two categories. Qualifying QCB’s which can benefit from the new Entrepreneurs’ relief, and non-qualifying QCB’s which will not.
3. Original ownership - Care is needed as the transitional relief will only accrue to a holder of QCB’s or other qualifying investments if they were the original disposer of the business assets. It is possible that these investments will have been passed, for example, to a spouse or civil partner. In such cases transitional relief will not be available. A solution could be for the recipient to now pass those shares or bonds back to secure relief on a subsequent disposal.
The three points listed above are those most likely to affect changes to your planned CGT costs, they are not exhaustive.
As highlighted above you will need our help to determine how, if at all, the expected CGT liabilities may have changed.